Microsoft Chugs Along In The Third Quarter, But Its Online Business Is Still Sucking Wind

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Microsoft announced earnings today for the third quarter. Overall revenues for the quarter came in at $15 billion, growing a decent 9 percent annually. But its net profits of $4.37 billion rose only 1.9 percent. As usual, Microsoft’s stability came from is Windows client, server, and Office businesses.

The company’s online revenues, which includes MSN, search and its advertising networks, grew 15 percent to $770 million in the quarter. However, the online business posted an operating loss of $480 million, nearly double the $267 million loss it posted a year ago. On the conference call, Microsoft boasted about its Silverlight partnership with NBC during the Beijing Olympics in which 70 million videos were streamed. You’ve got to wonder how much that partnership ended up costing Microsoft.

Total online advertising revenues were up 15 percent in the quarter, with search growing faster than display. The company expects online revenue growth to slow to 6 to 10 percent next quarter, with display advertising being more sensitive to the recessionary environment.

The company will be taking $400 to $500 million out of costs by slowing its hiring, spending less on data centers, and cutting back on marketing and travel expenses. But Microsoft still has plenty of cash: $21 billion, and that was after buying back $6 billion in stock and paying out $1 billion in dividends during the quarter. To put that $7 billion Microsoft handed back to shareholders into perspective, Yahoo’s entire market cap is now only $17.5 billion.

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